Privatisation in energy

Minister Ryan has come out against the privatisation of state-owned energy companies, for three reasons.

First, the minister states that these companies are investing, and implies that these investments would disappear if the companies would be privatised. That suggests that part of the current investment plans make no commercial sense. It would therefore be good to scrap those investments.

Second, the minister states that the companies paid a 320 mln euro dividend in 2009. The return on capital of ESB and BGE is a respectable 9.4%, but the return to the owner is only 4.3%. Ten year bonds are at 8.1% now, so a sale would be profitable to the Irish taxpayer.

Third, the minister states that splitting the companies would increase their cost of capital. A split is necessary because the network infrastructure is a natural monopoly that should remain in state ownership. Essentially, the minister claims that ESB and BGE use capital cross-subsidies between their activities. The value of the parts is therefore greater than the value of the total.

In sum, the minister has given three excellent reasons why the state-owned energy companies should be privatised.

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51 replies on “Privatisation in energy”

I don’t understand the numbers on the Second point. What do you mean by return to the owner? Return on what? Whether a sale makes financial sense versus bonds depends how much it is sold for. Current returns on capital or returns to the owner(?) are only vaguely related to the value that could be demanded on sale.

If anything, the fact that sovereign bonds are trading at such low levels would indicate that this is a bad time to sell anything Irish.

Fully split off ESB networks and have it create a level playing field for energy generators. Have it work on supplying all the tools and technology required for a smart grid – including allowing homeowners to sell back electricity they generate themselves.

Essentially do the same thing for electricity as the state owned and regulated road system used by the private car and delivery companies.

First, the minister states that these companies are investing, and implies that these investments would disappear if the companies would be privatised. That suggests that part of the current investment plans make no commercial sense. It would therefore be good to scrap those investments.

I’m no economist with degrees and everything, but this makes no sense whatsoever at the national level. We all saw what happened with Eircom when it was sold off – it’s now a husk of what it was, and investment of any sort be damned by whoever owns it now (a PO Box in Australia?).

How it can be argued that letting the private sector run utilities into the ground is “good” is beyond me, but then (as I say) I’m no economist, thankfully.

I’m puzzled by your assertion that the energy companies (presumably the energy supply businesses) should be sold while the networks should remain in state ownership. The natural monopoly characteristics of the networks may be addressed in various ways of which state ownership is but one option – and, in both theory and practice, is among the least efficient.

The largest share of value of the integrated businesses is in the networks (more in gas than in electricity) which if sold, in the currrent circumstances, would boost the NPRF’s value and reduce Ireland’s net public debt. It would monetise the state’s equity share in these businesses and would remove the liability that the debt of these businesses imposes on the state’s balance sheet. Potential investors might view ownership of regulated network assets to be more valuable than possession of sovereign bonds whose value is dependent on political decisions to cut and tax.

In addition, the unbundled supply businesses would have little net value if they were cut loose from the subsidy provided up to now by the network businesses.

This hardly seems like a good time to sell off the family silver. All sorts of options, radical and limited, exist to reduce the 8% borrowing rate which has only persisted for a matter of weeks. The most fleeting, capricious sentiments of the markets are not a sound basis for making policy.

@Paul

The kind of pseudo-market mechanisms used in the past to introduce competition into things like electricity or water networks have no real foundation in economics. Such experiments have frequently proven disastrous.

What is the time frame for this 4.3% return ? – surely if it is only 10 years the state is not looking at investments from a strategic perspective.
The return on ten year bonds is 8.1% but surely if the state does not engage in capital creation these hypothetical bonds that it sells to generate cash will only strip capital from itself to create a short term yield for someone else.
Is that the role of the state ?- to become a speculator on the lifetime of the states ability to extract wealth.
This whole discussion is redundant anyhow as the state can provide near zero interest loans for capital creation and once this project is in a net energy surplus it is viable.
Tol you need to get the financialism meme out of your head – bonds are not wealth creators when the interest on the debt created is more then the wealth created.
There is no point to such instruments unless you favour buccaneers over wealth creators.

‹···–––› I‘m ot sure I agree with it per-se. ‹O0› I’d put it differently–· The money I make would go back into the state coffers so… if, the investment doesn’t make more money for the telecom company long term, but improves business in ireland than it will be profitable for the state.
O.o Creating new infrastructure would be one example.

Seems like a poor choice, between selling energy companies to flippers/venture capitalists or having it ran according to the agenda of the minister of the day.

Energy security is one of the main challenges facing us…
The current minister is probably the worst of all possibilities, a reformer with an almost religious agenda in an area where numbers matter.

Selling of essential utilities is something to be feared by all consumers; because there is no limit to what the new owners can charge. and such sales rarely attract people who want to conservatively manage a company over a long term, making modest profits, keeping costs low, and investing in the future.

Surely there is a better way… I’m thinking is it not possible to let management of these companies actually manage?

I really don’t understand what you mean by this. If you have time, could you please elaborate?

Richard’s point is that we’re borrowing at 8% (or will likely be soon) and our investments pay 4% – this is simply not sustainable. You could claim that the other 5% is reinvested and so should be counted. However, if (as the minister implicitly assumes) the 5% is invested in something in which no private investor would touch, it is questionable whether we really get much of that 5% back.

Your discourse of “wealth creators” is confusing. If possible, try to provide some mathematical explanation.

Actually it sounds like the minister is claiming that the seperate energy companies would be less efficient and effective than one. and a private monopoly would raise costs, even more so.
‹O0› So it’s actually a good reason not to do so.

The problems that you, quite rightly, highlight arise from a failure to accompany the emergence of prompt, forward and future markets in the commodity with similar markets in generation and network capacity. This is like a bicycle with one wheel jammed. The US gas industry has developed ‘Coasian’ tradable property rights in pipeline capacity and has banished the abuse of market power and political meddling so far as it is possible while human beings are involved. Similar developments are emerging more slowly in the electricity industry.

The EU has failed to develop these markets in capacity, so the second wheel remains jammed. In addition, there are significant ‘geopolitical’ issues arising from an increasing reliance on external gas suppliers in Norway, Algeria and Russia – as well as efforts to source alternative supplies in the Mid East/Caspian region.

The risk and uncertainty caused by a failure to provide assurance of recovery of investment in specific, long-lived assets and by these geopolitical factors is encouraging increased consolidation by the major energy players and, quite rationally, increased vertical integration along the electricity and gas supply chains. This, of course, defeats the purpose of the exercise which is to generate efficiencies that provide sustainable benefits for final energy consumers.

In Ireland, on top of the application of this flawed EU policy, we have the desire to fatten the ESB and BGE and to pursue expensive Green fantasies – both of which impose deadweight cost on final consumers.

The target of a 40% share of electricity from renewable sources in Ireland by 2020 is very ambitious.

Translated into plain English:

The target of a 40% share of electricity from renewable sources in Ireland by 2020 is pure fantasy and would cost the earth even it were technologically achievable but we’re intellectual whores dependent on government largesse so naturally we’re going to tell the public what the government wants us to tell them, have a nice day

The private sector is essentially the banks – they have the ability to create credit , this they loan out expecting a return on their manufactured product.
They do not create wealth – they are a utility so therefore any profit they make reduces capital
If a economy can only grow sustainably at lets say 1% a year in real terms then producing debt with a 2 % return is by definition extractive.
Why do you accept the private sectors monopoly on the creation of credit ? especially when it is in the process of destroying wealth to get a return – this return is destructive to the common capital.
The oil age is coming to a end yet the banks expect the same return they were getting in the 20th century.
This is just not possible – the capital requirements will have to rise substantially before a economic ecosystem becomes net energy positive again.
Goverment can create the credit themselves via a central bank or a state industrial bank – interest need not be a part of wealth creation – indeed if , wages and interest are accelerating entropy then one or all need to be reduced – however we live in a monetory system where everything is subservient to interest which is in the process of destroying capital to get a short term yield.
In essence the markets are eating their own tail to get a return on fictional interest from declining capital that they themselves created.
If you understand that global accounting does not factor in depletion then you begin to understand that the current monetory system is seriously flawed.
Ask yourself why debt exploded relative to GDP after the junking of Gold as a unit of account – banks could create credit for anything without factoring in capital creation – the debts are now unplayable yet they continue to expect a return from countries which they themselves ran down to create a false short term yield.
Again why has Moneypoint not been replaced or there is no plans for replacement – because coal fired power stations are more capital intensive then gas and therefore banks would have made lower profits from the higher capital requirements so they opted for gas with a low capital cost and a high running cost.
This is the very core of the financial crisis now – and yet we continue to give monopoly control of credit to the banks that destroyed us.

Mention of the US gas market immediately brings Enron to mind. Even if Coase’s ideas — which I’m not familiar with — were to be completely successful, it would only be prudent to wait a while and see after so many disasters in this field.

As usual, the EU is taking a pasting; doesn’t anybody realise that governments let the EU take care of these things precisely so they can then come home and blame it all on Brussels? That energy liberalisation has happened to any extent is down to decisions at EU level.

Unfortunately Enron has entered the folklore as a one word response to energy market liberalisation (or de-regulation) – in the same way that Eircom has entered the folklore here in response to semi-state privatisation. In fact energy markets coped remarkably well with the fallout from Enron and the outcome in Ireland of the privatisation of an unrestructured, poorly regulated, low geared, fixed-line monopoly using an IPO during a global stock market bubble in the sector was entirely predictable.

And I also agree re the EU. What we have is the best variety of fudge the Commission could get past the Council and Parliament.

There was also the issue of the (1997?) blackouts on the west coast of the USA, another Enron-inspired disaster.

Some of the goings on then were disgraceful. For example various aluminium smelters sacked all their staff because they could momentarily make more money selling the electricity from their small associated power plants than they could from actually making aluminium.

While picking out the Enrons would normally be unfair, complex and artificial markets require complex and artificial regulation, regulation with a rock solid record of easy subversion by interested parties.

The Eircom example is certainly apposite; rather than protecting consumers, regulators have acted as point defense for the firm. US consumers haven’t much love for their telecoms firms either. Of course with complex pricing plans, every company can legally advertise itself as 60% cheaper than all competitors all the time.

These aren’t just hiccoughs — they’re part of a pervasive pattern. The scandal of the BUPA buyout is another example. On that occasion it was a large MNC that itself got fleeced, but it still demonstrates how money and heavy but necessary and inescapable regulation are a recipe for corruption.

Points gathered by the right from the recent catastrophic failure in an insufficiently regulated private sector of the economy.

None. We need more privatization and less regulation.

Points gathered by the right from the public interest damaging privatization of state utility Eircom:

None. We need more privatization and less regulation.

The religious element of right wing economics is never more visible than its lack of evidence base approach to privatization versus dirigisme/state ownership, it is frankly laughable to cherry pick success stories from other jurisdictions when the best known example from our own was (and remains) a serious failure.

It is also bizarre to paint Enrom as some aberrancy – it was the logical conclusion of the deregulated US energy market and California enjoyed rolling blackouts because of it.

“Richard’s point is that we’re borrowing at 8% (or will likely be soon) and our investments pay 4% – this is simply not sustainable”

So:

– Arbitrarily select ESB/BGE Return on Investment over Return on Capital because we don’t like their investment strategy;
– Arbitrarily select the year 2009 for the previously arbitrarily selected Return on Investment;
– Then arbitrarily selects the cost of capital that WOULD have applied IF the Irish government happened to be borrowing at 9:58am on Monday morning November 15, Year of our Lord 2011 (which it wasn’t). Despite the fact that the vast majority of the state’s borrowing is currently being financed at a lower rate? Despite the fact that this may represent a temporary peak?
– And because A is greater than B we should Sell Sell Sell?

Privatisation of utilities does not work. Privatisation of utilities has never worked. Privatisation of utilities will never work.

Utilities are utilities. They are not goods. They are not services. There is no utilities market. Trying to make a free market out of an inherent monopoly is a recipe for disaster.

The example of California is of paramount relevance here. The State of California privatised its electricity market in around 1996, and have had rolling brownouts ever since. They also has Enron shutting down plants to create artificial scarcity, accounting scandals and simply overall chaos and mismanagement.

Even a basic understanding of how electricity is distributed will show that the system is effectively impossible to deregulate. Power, wattage, must be supplied into a single grid to meet demand. It must all be transmitted at the right voltage, at the right current, in the correct amounts at the correct times, from the correct locations, and over the correct wires in order for it to work at all. Anyone who thinks it can be privatised need only familiarise themselves with the ludicrous hourly bidding system currently in place to see what kind of mental and regulatory contortions are necessary to have an even partially deregulated grid(It takes a 100 page document to fully explain). And all so most of the money can go into the remuneration of private management and workers pensions.

Whatever your opinion on how bad the ESB is, their failing will seem like quirks next to the debacles that will ensue in a privatised market. At least with the ESB, the government can still use the rule of law, and if necessary the power of the state to keep the juice on. Private companies will just end up selling generators and parts to the Venezuelans for a quick buck(who would admittedly actually put them to good use).

Amen to that , these lumberjacks claim they want to strip the forest so that the private forest creatures can thrive – what nonsense – they want the lumber for quick profit nothing more.
As you said the electrical companies are utilities – they are in essence the ecosystem of a economy.
I am sure that certain creatures will survive this holocaust and become stronger but the biomass and productivity of the system will collapse leaving a few dessert creatures to scratch a living from the wasteland.

@jc
Note that Minister Ryan gave three reasons for privatization. Robert Watt added a fourth in the IT (“competition” by companies owned by the same owner), and I may add the risks of political patronage and regulatory capture.

Regardless of the above numbers, the semi-states have a long track record in paying poor dividends — and not because they kept prices artificially low.

Utilities can certainly be privatised. It will not lead to better or cheaper services for customers, but it will make better returns for investors. And that’s whay utilities exist, right? To make better returns for investors?

@Richard Tol
Again it can be a positive when utilities pay a poor surplus – especially if most of that surplus is recycled towards capital formation.
If the banks payed a zero dividend over the years and kept those funds for bad losses the bondholders , ahem I mean the taxpayer would not be on the hook.
Profits or surpluses in utilities are entirely artificial
Can anybody give me a figure for total wages in the ESB relative to the other and overall cost – I seem to remember it is in the order of 10%, with the largest outlay on fuel costs while I am certain that capital formation has been slashed over the years which is madness.

In fact energy markets coped remarkably well with the fallout from Enron

The state of California would beg to disagree:

The California electricity crisis, also known as the Western U.S. Energy Crisis, of 2000 and 2001 was a situation where California had a shortage of electricity. The state suffered from multiple large-scale blackouts, one of the state’s largest energy companies collapsed, and the economic fall-out greatly harmed Governor Gray Davis’s standing.

Artificial supply shortage was created by energy traders gratuitously taking power plants offline for (unnecessary) “maintenance” on hot summer days of peak demand.[4][5] Rolling blackouts adversely affected many businesses dependent upon a reliable supply of electricity, and inconvenienced a large number of retail consumers. This demand supply gap was further exploited by energy companies, mainly Enron. Enron traders were thus able to sell power at premium prices, sometimes up to a factor of 20x its normal peak value. Because the state Government had a cap on retail electricity charges, this market manipulation squeezed the industry’s revenue margins, causing the bankruptcy of Pacific Gas and Electric Company (PG&E) and near bankruptcy of Southern California Edison in early 2001.[6]

The financial crisis was possible because of deregulation legislation instituted in 1996 by Governor Pete Wilson. Enron took advantage of this deregulation and was involved in economic withholding and inflated price bidding in California’s spot markets.[7] The crisis cost $40bn to $45bn.[8]

Actually 2009 was a good year for dividends from the ESB due to the one-off sale of power station assets to Endesa. They were double the 2008 offering, which, in turn, was double the 2007 offering. The problem is that paying these dividends means that the ESB has to borrow more to finance investment, or, much easier, lean on the CER to set prices and tariffs that will extract more money from final consumers. For the network assets the CER applies a fictional cost of capital to an asset valuation that is based on a subjective judgement (and is even then applied incorrectly) to generate the revenues the ESB requires.

The ESB didn’t much like the revenues the CER was proposing for the next 5 years in July/August and the CER is proposing to increase its fictional cost of capital by almost 20% from 5% real to 5.95% real. This will extract more than €200 million extra (in constant 2009 prices) from consumers over the next 5 years to boost distribution revenues. The CER hasn’t published the impact on transmission revenues, but the extra gouging is likely to amount to between €100-150 million. It’s just what households and businesses need over the next five years as they try to adapt to probably one of the most severe fiscal adjustments imposed in a developed economy.

Average marginal cost of Irish govt debt in 2010 was 4.7%. The average marginal cost of Irish govt debt in 2009 was also 4.7%
(Source: Financial Times, “Ireland: The long hangover” 3/10/2010)

According to KW, we are being offered bailout capital now at below 6% which we will only subscribe for if we can’t raise cash at a lower rate on the markets.

Demergers carry risks and once-off costs as well as efficiency opportunities. I think the minister is just saying that we have enough problems right now without trying to fix something that isn’t broken.

Dividend yield is equivalent to return on investment if all the company’s invested profits yield -100% and the company’s share price never increases. That’s pessimistic.

With respect, I disagree with the idea that if a demerged ESB results in a higher cost of capital that this is proof of the existence of capital cross-subsidies. It may simply be that the result of the demerger was to destroy value in a vertically integrated company and lose benefits such as efficiencies of scale.

@Richard Tol.
Your logic in refusing the ministers reason’s is mistaken.
1. If (I should say when) the newly privatised companies stop investing, this does definitely not mean that current investments make no sense. The new Eircom has left the country without a proper broadband network through lack of investment. The first thing newly privatised companies do is cut capital investment. There have no interest in the long term future of the utility network.

2. I do not know why you make a distinction between the return on capital and the the dividend paid. The return on capital is the return to the shareholder. The dividend can be mandated in a public utility. Your distinction is spurious. In addition I do hope the future of electricity or other energy provision is not dictated by the daily yield on Irish 10 year bond.

3. Any company split will of necesity increase overheads, particularly in companies requiring a high level of technical expertise. The minister is correct in this.

There is a major issue of excess remuneration in both the ESB and Bord Gais and it would appear throughout the public service. This issue should be dealt with and dealt with properly not by selling the companies but by reducing the pay. It is a cop out to sell the companies because they cannot be managed properly and prudently.

There is one further reason why privatisation is nonsense in the context of the State finances. It is estimated that the ESB would fetch about €3 billion. This would pay the monthly current account deficit from today Nov 15th to January 15th 2011. ie two months at most.
We need to put State finances on a proper footing.
An injection of any kind whose benefits last until January 15th is not the answer to Ireland’s difficulties.

I hope that the Irish goverment is going to learn from last mistakes……
PLEASE DO NOT SELL OFF THE IRUSH ENERGY COMPANIES…..,Try to have some control in your own hands. We all should be learning from history…(eirecom eirlingus… etc), talking about shooting yourself in the foot… We also should be learning from world (Finanical) history.. 1931-45, Ireland could be that Austrian (astalt) bank that started the second leg of the Greater Depression.
IRELAND has come a long way sense they joined the ECC in 1973….,From a backward (60-70% Farming) country to a world class highly technical Nation.
Most of that ground work was done in the late 70’s & 80’s and to think it could be all blown away because of some dumb, arrongant, self centered, politicans, thinking of only saving their own face than the greater good the people and the world……..
The Irish people have gained MORE from the EU than it gave……, it is time to play ball with the other EU member countries and think not of yourself but the greater good of the european community as a whole. Ireland might be a small country but is the key stone to which holds up the EU and the EURO and stop the continent from falling apart….NO ONE WANTS A FAILED EUROPE…..

It seems a consensus is emerging that privatisation of the energy businesses is a very, very bad thing, but there seems to be little understanding of the extremely complex policy and regulatory regime that has been put in place over the last decade and which is imposing hundreds of millions of deadweight cost on consumers each year – and how privatisation would benefit both the state and consumers.

@Paul Hunt
re: a complex policy and regulatory regime….which is imposing hundreds of millions of deadweight cost on consumers each year – and how privatisation would benefit both the state and consumers.

“There is a major issue of excess remuneration in both the ESB and Bord Gais and it would appear throughout the public service. This issue should be dealt with and dealt with properly not by selling the companies but by reducing the pay”

@Joseph Ryan
Airlines not a utility ? It is part of the transport infrastructure yes.

The problem with peoples ideas of course is that the costs presented to people are narrow ones.
Would we even have airlines without the huge capital investment of both world wars ?
When the likes of Ryan air engages in price competition with both Boeing and Airbus to get the lowest price planes do these companies have any surplus to engage in meaningful research and development ?
Would Airbus have ever existed without a huge subsidy by both the British and French aerospace industries to build Concorde?
Why is such tremendous technological capital investment frowned on today as bad practise when we spend far more on very strange monetory black holes.
Would short haul airlines even exist now if they had not reduced overheads and capital expenditure to sustain a unsustainable industry for another 20-30 years and therefore depriving those years of necessary capital investment for a future transport infrastructure using less oil.
When utilities run down capital costs to sustain a artificial profit they do more damage to economies then entire armies.

Ireland has an advantage when it comes to the bailout……
IF Ireland did go with the bowl beggin for a bailout it would have no CONTROL on the terms and conditions of the loan.
But if Ireland is offered a bailout it could control the term & conditions of the contract, you have more choice to which the funds can be used for (mainly the banking sector). The last people you want in the country is the IMF…..,the first thing they will do is cut your expence by half….. and ask questions later. If there is money to be given, take it from your neighbor’s first the EU…. If is a question of the dog that you do know and the dog you don’t know, the EU is the better choice.
The IMF is one day soon going to be mainly controled by the Chinese…( they as good as own the states already and control it very soon). The chinese more or less have the purse strings of the world…… The last thing you want it to owe money to the chinese… God forbid and if you did owe money to them will want their pound of flesh and then some and will take it by hell or by crook…….

allow esb customer supply to set its own price rather then the market price be set by a regulator who’s main concern is diminish the market share of a state company to allow foreign investment to be subsidised at the cost to the Irish consumer

The energy regulator and semi add approximately .5 cents in cost to the cost of electricity for what utility other then to allow scottish power to extract market share here at the cost of our own company

Sometimes privatization and dergulation is good (e.g. AT&T). Sometimes it’s bad (e.g. California & Enron). Sometimes it’s a matter of long term debate (like the UK). The devil is in the details. How about we address details?

On the specific point of the yield. Whether or not the Irish govt is borrowing now, if the Irish govt used the proceeds of selling the ESB and bought its own bonds at a yield of 8.1% and presuming it didn’t default on itself, that’s an 8.1% ROI on that investment. Isn’t it? Is the govt getting a better deal on the capital invested in the ESB?

the outcome in Ireland of the privatisation of an unrestructured, poorly regulated, low geared, fixed-line monopoly using an IPO during a global stock market bubble in the sector was entirely predictable.

My impression of the Eircom privatisation is that everything about it was deliberately designed to maximise the IPO bottle-rocket. Including the regulatory framework.

Typical bourgeois nonsense that got us into this mess. If you (as a private businessman) owned the ESB would you sell it? Of course not, however the bourgeois business class are dying to get their grubby little hands on successful companies in Ireland. And what will they do with them? Asset strip, destroy (not pay tax) and continue to lecture the rest of us. Your policies have been enacted over the last two years (and decades before). thay have and continue to fail.

Removing deadweight cost is a problem. But it is the right thing to do. I don’t know how it can be done easily. But the fact that Ireland appears unable or unwilling to deal with the issue is one of the reasons we are where we are. It seems to one of the many issues that Ireland is unable to deal with. Perhaps it goes back to the colonial experience.

I agree with Hugh Sheehy; the devil is in the details. Successive governments have built such an elaborate policy and regulatory edifice (which has been crafted to be seen to comply with the letter of EU primary legislation (but rarely the spirit) while maintaining the ESB and BGE as financially integrated national champions capable of delivering overt and covert policy objectives) that any attempt to loosen one of the stones could bring the entire edifice crashing down.

It is a smaller scale version of the public policy-bank supervision-financial regulation nexus that has brought the entire domestic banking system to the edge of total insolvency and the economy to its knees. This is another debacle in the making on which the government is determined to keep a lid. Minister Ryan’s argument should be considered in this context. Ironically however, it is Minister Ryan’s determination to pursue his Green agenda – and the additional resulting costs and responsibilities he is imposing on the ESB and BGE (which both accept as the price of secuing their indispensability in the policy sphere) – that is putting increasing strain on the regulatory system (and on the willingness and ability of consumers to pay for these policy desires and fantasies).

Previously the CER was struggling to come up with any sort of barely credible rationale for delivering the revenues the ESB and BGE demanded. It applied its fictional cost of capital to its beefed-up valuation of assets to generate excessively high revenues, but that is now no longer enough to satisfy the ESB and BGE. Under pressure from the ESB the CER is on the verge of approving a 20% increase in the fictional cost of capital which will extract up to €400 million extra from consumers over the next 5 years – and that is on top of charges that are already excessive and the extra costs of a dysfunctional electricity market.

Given the fiscal adjustment that is being contemplated, this is simply a bridge too far.

One, perhaps, can understand the Government’s desire to avoid detailed EU/IMF scrutiny of domestic economic and regulatory policy at almost any cost when there are so many creepy-crawlies hiding under the stones – and not only in the energy area.

One other point. Even in the California case, where deregulation worked so badly, AFAIK all the generation companies were privately owned for decades beforehand. Certainly across the US it is common or maybe even universal that generation is owned by private companies. It’s regulated, certainly, but it’s privately owned.

Also, while I know that many people like to hold up our Nordic cousins as an example of all things state-controlled, they deregulated electricity quite successfully back in the nineties.

One report, worth reading if you have access, says this

“The relatively successful electricity market reform in the Nordic countries seems to be attributable to the followings: a simple but sound market design, a successful dilution of market power, a strong political support for deregulation and voluntary, informal commitment to public service by the power industry.”

Heaven protect us from simple but sound market design!! It’s not easy to do, but it is possible and it’d surely be better than having an excessively expensive generation system.

That Jonathan Rowe link is on the money. It also meshes with what Francis said some threads previous when I asked him about the aspirations of today’s German workers. I venture to state that most of DOCM’s posts have been compatible also, in that s/he emphasises the issue of responsible governance. We all sign up to it, but the devil is in the detail.

This is an excellent board, which I have followed for five very interesting years. I think we have all got a bit of the elephant, and I would favour a public/private, German/Irish ceasefire at this point. Co-existence is the goal surely.